Revised Proposal for Disclosures by Resource Extraction Issuers Is Published

Revised Proposal for Disclosures by Resource Extraction Issuers Is Published

December 15, 2015

The SEC issued a proposal of the revised version of a Dodd-Frank Act rule that was overturned by a 2013 court decision. The rule requires oil, gas, and mining companies to disclose payments made to foreign governments.

The SEC issued Release No. 34-76620, Disclosure of Payments by Resource Extraction Issuers, after the commissioners voted 3-1 to issue a revised version of a Dodd-Frank Act rule requiring oil, gas, and mining companies to disclose payments made to the U.S. federal government and foreign governments as part of their business on December 11, 2015.

The SEC is taking the unusual step of incorporating a two-stage comment period for the proposal. The deadline for initial comments is January 25, 2016. People and organizations interested in replying to the first round of comments have until February 16 to submit their responses.

The Dodd-Frank requirement has long been controversial for the businesses subject to it. In an explanation of his dissenting vote, SEC Commissioner Michael Piwowar said the proposal will only serve special interest groups.

The proposal is a second attempt by the agency to write the congressionally mandated rule. In 2012, the SEC issued Release No. 34-67717, Disclosure of Payments by Resource Extraction Issuers, which instructed oil, gas, and mining companies to disclose payments of $100,000 or more to foreign governments and the U.S. government on Form SD. The payments covered by the rule include taxes, royalties, fees, production entitlements, bonuses, dividends, and infrastructure improvements.

In 2013, the U.S. District Court for the District of Columbia overturned the rule because it required public disclosure of information the companies wanted to keep private and cause competitive harm. Moreover, businesses said the proposed disclosures could be prohibited under a host country’s laws.

“We have responded to that concern in this proposal,” SEC Chair Mary Jo White said. “The commission has the authority… to consider exemptive relief in such circumstances on a case-by-case basis.”

She added that since the rules were first issued in 2012, there have been international developments and progress was made by the U.S. Extractive Industries Transparency Initiative (USEITI).

“The proposed approach would allow issuers to use a report prepared for foreign regulatory requirements to comply with the commission’s rules if the commission determines such requirements are substantially similar to its own rules,” White said.

The SEC said in Release No. 34-76620 that companies will have to apply for exemptions before the agency will approve them.

Under the proposed rules, publicly listed oil, gas, and mining companies, including their subsidiaries or other entities controlled by the companies must disclose payments of more than $100,000 made to U.S. and foreign governments annually in Form SD within 150 days after the end of the fiscal year.

The SEC said control would be determined by financial consolidation principles that companies apply to audited financial statements in annual reports.

In particular, oil, gas, and mining companies would be required to disclose taxes, royalties, fees, production entitlements, bonuses, dividends, and payments for infrastructure improvements. The types of payments are consistent with the requirements in the European Union, Canada, and the USEITI, the SEC said.

Companies would have to provide type and total amount for each project related to commercial developments; types and total amount for all projects made to each government; total amounts of the payments by category; currency used to make the payments; financial periods in which the payments were made; business segments of the company that made the payments; the governments that received the payments and the country where the governments are located; the project of the company to which the payments relate; the particular resource that is subject of commercial development; and the project’s geographic location.

The proposed rules would define “project” based on the legal agreement that forms the basis for payment liabilities with a government. This definition could also include operational activities governed by multiple legal agreements. The information would be included in an exhibit and electronically tagged using the eXtensible Business Reporting Language (XBRL) format.

Oxfam America Inc. has been pushing for the rule, saying transparency is needed with transactions worth billions of dollars in oil, gas, and mining projects taking place in some of the poorest, most corrupt, and highest-risk countries.

A few days before the SEC vote, Oxfam said it welcomed the agency’s decision to publish a revised proposal.

However, Piwowar said he’s voting against the rule because “disclosure of resource extraction payments neither reforms Wall Street nor provides consumer protection and it is wholly unrelated, and largely contrary, to the Commission’s core mission.”